- OPEC+ was supposed to discuss expanding oil output cuts into 2024.
- US crude oil inventories increased by 8.7 million barrels last week.
- The US dollar recovered from a 2-1/2-month low after economic data indicated lower unemployment claims.
On Wednesday, oil prices dropped nearly 1% in a volatile session. OPEC+ unexpectedly postponed a meeting on production cuts from November 26 to November 30, fueling concerns about global crude supplies. The group, consisting of major producers like Saudi Arabia and Russia, was supposed to discuss the possibility of expanding oil output cuts into 2024.
Prices rebounded when it was revealed that the disagreement was linked to smaller African producers within OPEC+ rather than the top oil exporters. Traders also attributed the price fluctuation to low liquidity before the US Thanksgiving holiday.
According to Dennis Kissler, senior vice president of trading at BOK Financial, the postponement raised worries that more oil production might come online in the coming months. Additionally, a rise in inventories contributed to Wednesday morning’s price decline. Higher imports increased US crude oil inventories by 8.7 million barrels last week.
US initial jobless claims (Source: US Labor Department)
Meanwhile, the US dollar recovered from a 2-1/2-month low after economic data indicated lower unemployment claims. This rebound made dollar-denominated oil more expensive for buyers in other currencies. The Labor Department disclosed that initial claims for state unemployment benefits dipped by 24,000 to a seasonally adjusted 209,000 for the week ending Nov. 18. This marked the lowest level in over a month.
Karl Schamotta, chief market strategist at Corpay in Toronto, noted, “The fact that we are seeing a drop suggests that the labor market is not cooling as quickly as markets or the Fed might have been expecting there.”
Market expectations for the Federal Reserve’s December meeting have ruled out any rate hikes, while there is a better-than-50% chance of a rate cut by May, according to CME’s FedWatch Tool.
The dollar rose further after the University of Michigan’s consumer sentiment survey indicated that US consumers’ inflation expectations rose in November.
Oil has experienced four consecutive weeks of decline. To support prices, OPEC and its allies must extend and increase cuts.
OPEC+ nations may extend cuts into the next year. However, the head of the International Energy Agency’s oil markets and industry division cautioned that the global oil market could still experience a slight supply surplus in 2024.